Columbia Financial, Inc. (CLBK) FY 2023 MD&A

Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations

The objective of this section is to help potential investors understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the consolidated financial statements and notes to the consolidated financial statements that appear at the end of this report.

Executive Summary

Our primary source of pre-tax income is net interest income. Net interest income is the difference between the interest we earn on our loans and securities and the interest we pay on our deposits and borrowings. Changes in levels of interest rates as well as the balances of interest-earning assets and interest-bearing liabilities affect our net interest income.

A secondary source of income is non-interest income, which is revenue we receive from providing products and services. Traditionally, the majority of our non-interest income has come from service charges, loan fees, interchange income, gains on sales of loans and securities, revenue from mortgage servicing, income from bank-owned life insurance and fee income from title insurance, insurance agency and wealth management businesses.

The non-interest expense we incur in operating our business consists of salaries and employee benefits expenses, occupancy expenses, depreciation, amortization and maintenance expenses, data processing and software expenses and other miscellaneous expenses, such as loan expenses, advertising, insurance, professional services and federal deposit insurance premiums. Our largest non-interest expense is salaries and employee benefits, which consist primarily of salaries and wages paid to our employees, payroll taxes, and expenses for health insurance, retirement plans and other employee benefits.

Our business results are impacted by the pace of economic growth and the level of market interest rates, and the difference between short-term and long-term rates. Competition among banks to secure new customers, loans and deposits has remained fierce, and interest rate spreads have again declined over the last few years. We continue to adhere to our prudent underwriting standards and are committed to originating quality loans. Additionally, we have maintained relatively low levels of non-performing assets, past due loans and charge-offs, through all economic environments.

Business Strategy

Our business strategy is to continue to operate and grow Columbia Bank as a profitable community-oriented financial institution and to continue to shift our focus to more business-oriented commercial banking. We plan to achieve this by:

Increasing earnings through the growth of our balance sheet.

We intend to continue to grow our balance sheet through organic growth of loans and securities, funded by growth of deposits and borrowings. We expect that this growth will increase revenue faster than the growth of expenses, resulting in increased earnings over time.

As part of our growth strategy, we will seek to grow our loan portfolio and deposit base at consistent rates of growth. We have a diversified loan portfolio, which includes multifamily and commercial real estate loans, residential mortgage loans, residential and commercial construction loans, commercial business loans and consumer loans (primarily home equity loans and advances). While we intend to continue our focus on originations of one-to-four family residential mortgage loans as we grow our loan portfolio, we expect to continue to shift the mix of our loans over time, from residential mortgage loans, toward commercial loans and, correspondingly, shift our deposit mix toward commercial deposits, particularly non-interest-bearing checking accounts. These strategies along with continued deposit pricing discipline are expected to enhance our net interest margin.

Expanding our commercial business relationships.

Historically, our commercial loan products have consisted primarily of loans secured by multifamily and commercial real estate and construction loans. As part of our growth strategy, we intend to continue our increased focus on commercial business lending, which offers shorter terms and variable rates, helps to manage interest rate risk exposure, and provides us with an opportunity to offer a full range of our products and services, including cash management, and deposit products to commercial customers. In 2023, most of our commercial banking customers had deposit accounts with us.

In 2023, our commercial business loans increased 7.2% from the year ended December 31, 2022 which was primarily due to a stable volume of originations coupled with a decrease in repayment activity on these loans. Historically, we have focused on commercial business lending in New Jersey with only a minimal volume from neighboring states, but anticipate that we will increase the amount of loans originated in Pennsylvania and New York, as we continue to grow our commercial loan business. We anticipate that any such expansion of our commercial lending to market areas outside New Jersey will increase lending and deposit opportunities in those areas and provide geographic diversification within our portfolio.

32

Continuing to emphasize the origination of one-to- four family residential mortgage loans.

At December 31, 2023, $2.8 billion or 35.6%, of our total loan portfolio consisted of one-to-four family residential mortgage loans. Although we expect to shift the mix of our loans over time, from residential mortgage loans, toward commercial loans, we intend to continue to emphasize the origination of one-to-four family residential mortgage loans in the future. We believe there are opportunities to maintain and increase our residential mortgage lending in our market area, and we have made efforts to take advantage of these opportunities by increasing our origination channels. In recent years, we implemented a new digital mortgage system which greatly expedites the processing of mortgage, home equity and HELOC applications.

We originate one-to-four family residential mortgage loans for our own portfolio but periodically Columbia Bank and Freehold Bank sell loans to third-party investors with servicing retained. We offer fixed-rate and adjustable-rate residential mortgage loans, which totaled $2.5 billion and $314.0 million, respectively, at December 31, 2023. To increase the origination of adjustable-rate loans, we intend to continue originating loans that bear a fixed interest rate for a period of up to seven years after which they convert to one-year adjustable-rate loans.

Increasing fee income through continued growth of fee-based activities.

We intend to focus on growing our existing title insurance business, our existing insurance agency business and expanding the scope of the wealth management services we provide and increasing our revenues from loan servicing activities to increase the amount of fees earned from our fee-based businesses. Presently, the majority of our revenue comes from interest income and less than 7% from other sources, including title insurance fees, loan and deposit fees, bank-owned life insurance, insurance agency income and gains and losses on the sales of securities and loans. We expect to increase fee income from enhancing interchange services, generating additional commercial loan swap fee income and expanding treasury services.

We currently offer title insurance services through our title insurance agency, offer wealth management services through a third-party networking arrangement, and offer life and heath, and property and casualty insurance to our customers through our insurance agency. In order to expand our services and grow our business, we have considered the acquisition of title insurance agencies and wealth management businesses in recent years and expect to actively pursue the acquisition of such fee-based businesses, as well as considering the acquisition of other fee-based businesses such as other insurance agencies and specialty lending companies. We continue to consider acquisition opportunities of fee-based businesses, but we currently have no understandings or agreements with respect to any such acquisitions.

We also intend to grow our servicing revenue by continuing to periodically sell one-to-four family residential mortgage loans that we originate to third-party investors, including other financial institutions, while retaining the servicing of such loans.

Expanding our franchise through de novo branching, branch acquisitions and the possible acquisition of other financial institutions and/or financial services companies.

We believe there are branch expansion opportunities within our market area and adjacent markets, including other states, and will seek to grow our deposit base by adding branches to our existing branch network. In addition to deposit generation, our branch network also generates one-to-four family loans, home equity loans and advances and other consumer loans. While we are aware of the industry branch consolidation trends, we believe that in order to attract new customers, we need to selectively expand our network to fill in gaps in the existing footprint and into adjacent markets. We believe that new smaller branch designs, which are more cost-efficient, are more appropriately sized and staffed for the expected transaction volumes.

Our growth strategy also includes the acquisition of other financial institutions within our market area as well as in neighboring states. Since November 2019, we have acquired Atlantic Stewardship Bank, Roselle Bank, Freehold Bank and RSI Bank. We intend to continue to pursue the acquisition of banks and thrifts, including thrifts in the mutual and mutual holding company structure. In the past, we have relied upon organic growth rather than acquisitions to grow our franchise, and there is no guarantee that we will be successful in pursuing our acquisition strategy.

Maintaining asset quality through the application of a prudent, disciplined approach to credit risk as part of an overall risk management program.

We employ a conservative, analytical approach to the assets we acquire that we have tested over many different business and interest rate cycles. This applies to our securities portfolio, which is comprised primarily of liquid, low credit-risk, government agency-backed securities, as well as, our loan portfolio. Residential loans are underwritten to secondary market standards and our commercial lending policies are designed to be consistent with industry best practices. We subject our loan portfolio to independent internal and external reviews to validate conformance to policies and stress tests to identify areas of potential risk. We have management information systems that provide regular insight into the quantity and direction of credit risk in our loan portfolio segments, including borrower and industry-specific concentrations. We employ limits on concentration risks, including the ratios of commercial real estate and construction loan portfolios to capital. We have developed reporting, analytics and stress testing that we believe provide effective oversight of these portfolios at higher concentration levels.

33

We employ tools to ensure we are being appropriately compensated for the risks inherent in the lending products we offer, and in the specific transactions. Our commercial loan pricing model quantifies the credit and interest rate risk embedded in our new loan originations and provides a target return hurdle.

We operate with Risk Committees, at both the management and board levels, that review changes in the quantity and direction of risk. These committees review our key risk indicators, loan portfolio and liquidity stress tests and operational and cyber risk assessments, which draw from our Asset/Liability Committee data, our loan portfolio credit metrics and treasury risk (investment/funding) metrics.

Enhancing our technology infrastructure to broaden our product capabilities and improve product delivery and efficiency.

We have embraced the latest technological developments in the banking industry, which we believe allows us to better leverage our employees by enabling them focus on developing customer relationships, generate retail deposits in an efficient manner, expand the suite of products that we can offer to customers and allow us to compete more efficiently and effectively as we grow. Our commercial loan underwriting and relationship monitoring system enables us to better support and manage our commercial customer base. In recent years, we have released several digital banking and other Fintech solutions to support our customers, which included a new digital mortgage system which greatly expedited the handling of mortgage, home equity and HELOC applications. We have also introduced a digital small business lending solution, online chat and appointment scheduling and a credit card platform. We expect to continue to enhance our digital technology platforms to provide more appealing products and services to our customers and support our sales, marketing initiatives, and call center. We are continuously upgrading our company-wide technology infrastructure to support both organic and inorganic growth.

Focusing on an enhanced customer experience and continued customer satisfaction.

We believe that customer satisfaction is a key to generating sustainable growth and profitability. While continually striving to ensure that our products and services meet our customers’ needs, we also encourage our officers and employees to focus on providing personal service and attentiveness to our customers in a proactive manner.

Our strategy continues to be focused on providing quality customer service through our convenient branch network, supported by our Call Center, where customers can speak with a representative to answer questions and resolve issues during business and extended hours. We believe that our ability to close transactions and deliver our services in a timely manner is attractive to our customers and distinguishes us from other financial institutions that operate in our marketplace. Our customers enjoy access to senior executives and decision makers and the value it brings to their businesses. We also offer convenient online and mobile banking tools for customers to transact business anytime and anywhere.

We believe that many opportunities remain to deliver what our customers want in the form of exceptional service and convenience and we intend to continue to focus our operating strategy on taking advantage of these opportunities.

Employing a stockholder-focused management of capital.

We intend to manage our capital position through the growth of assets, as well as the utilization of appropriate capital management tools, consistent with applicable regulations and policies, and subject to market conditions. Under Federal Reserve Board regulations, we were prohibited from repurchasing shares of our common stock for one year following our minority public offering that was completed in April 2018. Since June 2019, we have announced six stock repurchase programs under which we have repurchased an aggregated of 25,893,159 shares of common stock as of December 31, 2023.

Our Board of Directors has the authority to declare dividends on our shares of common stock, and may determine to pay dividends in the future, subject to statutory and regulatory requirements and other considerations such as the ability of Columbia Bank MHC to receive permission from the Federal Reserve Board to waive receipt of any dividends we may determine to declare in the future. If Columbia Financial pays dividends to its stockholders, it also will be required to pay dividends to Columbia Bank MHC, unless Columbia Bank MHC is permitted by the Federal Reserve Board to waive the receipt of dividends. The Federal Reserve Board’s current position is to not permit a "non-grandfathered" mutual holding company to waive dividends declared by its subsidiary. Columbia Bank MHC may determine to apply to the Federal Reserve Board for approval to waive dividends if we determine to pay dividends to our stockholders. Given the Federal Reserve Board’s current position on this issue, there is no assurance that any request by Columbia Bank MHC to waive dividends from Columbia Financial would be permitted. The denial by the Federal Reserve Board of any such dividend waiver request, if sought, could determine whether the board of directors of Columbia Financial determines to declare a dividend, or if so declared, could significantly limit the amount of dividends Columbia Financial would pay in the future, if any.

34

Critical Accounting Policies and Estimates

In the preparation of our consolidated financial statements, we have adopted various accounting policies that govern the application of U.S. generally accepted accounting principles (“GAAP”) and general practices within the banking industry. Our significant accounting policies are described in note 2 to the consolidated financial statements.

Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies, which are discussed below, to be critical accounting policies. These assumptions, estimates and judgments we use can be influenced by a number of factors, including the general economic environment. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.

Allowance for Credit Losses. The Company adopted ASU 2016-13 on January 1, 2022 for all financial assets measured at amortized cost and off-balance-sheet credit exposures. Results for the years ended December 31, 2023 and 2022 are presented under Accounting Standards Codification 326, Financial Instruments - Credit Losses, while prior period amounts continue to be reported with previously applicable GAAP and have not been restated. See note 2 in the notes to our consolidated financial statements for a detailed discussion of our accounting policies and methodologies for establishing the allowance for credit losses.

Additional information about our allowance for credit losses is presented in note 7 to the audited consolidated financial statements.

The determination of our allowance for credit losses (“ACL”) on loans is considered a critical accounting estimate by management because of the high degree of judgment involved in determining qualitative loss factors, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment. Although we believe we have established and maintained the ACL at appropriate levels, changes in reserves may be necessary if actual economic and other conditions differ substantially from the forecast used in estimating the ACL.

Our ACL totaled $55.1 million and $52.8 million at December 31, 2023 and 2022, respectively. The increase in the reserve was primarily attributable to an increase in the outstanding balance of loans and an increase in qualitative factors, partially offset by a decrease in loan loss rates. The ACL reserve components related to collectively evaluated loans and individually analyzed loan reserves was $54.3 million and $52.4 million, respectively and $787,000 and $422,000, respectively, at December 31, 2023 and 2022, under the CECL methodology.

At December 31, 2023, management performed a hypothetical sensitivity analysis to understand the impact of a change in a key input on our ACL. If the U.S. unemployment rate had been increased from an average range of approximately 4.3% to 6.0% for the forecast period, and U.S. Gross Domestic Product ("GDP") decreased from an average range of approximately 1.4% to 1.0% for the forecast period, our ACL reserves would have been approximately $4.5 million higher. This sensitivity analysis includes the impact of quantitative components of our ACL. Changes in quantitative inputs and qualitative loss factors may not occur in the same direction or magnitude across all segments of our loan portfolio and deterioration in some quantitative inputs and qualitative loss factors may offset improvement in others. This sensitivity analysis does not represent a change to our expectations of the economic environment but provides a hypothetical result to assess the sensitivity of the ACL to a change in a key input. This sensitivity analysis does not incorporate changes to management’s judgment of qualitative loss factors.

If the four-quarter U.S. unemployment rate forecast had been 9% rather than an average of approximately 4.3%, our ACL would have been approximately $18.4 million higher. This sensitivity analysis includes the impact to the quantitative components of our ACL. Changes in quantitative inputs and qualitative loss factors may not occur in the same direction or magnitude across all segments of our loan portfolio and deterioration in some quantitative inputs and qualitative loss factors may offset improvement in others. This sensitivity analysis does not represent a change to our expectations of the economic environment but provides a hypothetical result to assess the sensitivity of the ACL to a change in a key input. This sensitivity analysis does not incorporate changes to management’s judgment of qualitative loss factors.

Going forward, the impact of utilizing the CECL approach to calculate the allowance for credit losses will be significantly influenced by the composition, characteristics, and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and, therefore, greater volatility to our reported earnings.

Most of our non-performing assets are collateral dependent loans which are written down to the fair value of the collateral less estimated costs to sell. We continue to assess the collateral of these loans and update our appraisals on these loans on an annual basis. To the extent the property values decline, there could be additional losses on these non-performing assets, which may be material. Management considered these market conditions in deriving the estimated ACL. Should economic difficulties occur, the ultimate amount of loss could vary from our current estimate. For additional discussion related to the determination of the allowance for credit losses, see “Risk Management-Analysis and Determination of the Allowance for Credit Losses” and the notes to the consolidated financial statements.

35

Income Taxes. We are subject to the income tax laws of the various jurisdictions where we conduct business and estimate income tax expense based on amounts expected to be owed to these various tax jurisdictions. The estimated income tax expense (benefit) is reported in the Consolidated Statements of Income. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a continual basis as regulatory and business factors change.

Accrued or prepaid taxes represent the net estimated amount due to or to be received from tax jurisdictions either currently or in the future and are reported in other assets or other liabilities in our consolidated financial statements. We assess the appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent and other pertinent information and maintain tax accruals consistent with our evaluation. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, status of examinations by the tax authorities and newly enacted statutory, judicial and regulatory guidance that could impact the relative merits of tax positions. These changes, when they occur, impact accrued taxes and can materially affect our operating results. The Company identified no significant income tax uncertainties through the evaluation of its income tax positions as of December 31, 2023 and 2022. Therefore, the Company has no unrecognized income tax benefits as of those dates.

As of December 31, 2023 and 2022, we had a net deferred tax assets totaling $25.5 million and $36.9 million, respectively. In accordance with Accounting Standards Codification (“ASC”) Topic 740 “Income Taxes,” we use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period enacted. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a regular basis as regulatory or business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect earnings. Management believes, based on current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize federal deferred tax assets and that it is more likely than not that the benefits from certain state temporary differences will not be realized. In recognition of this risk, we have provided a valuation allowance of $26,000 and $2.0 million, respectively, as of December 31, 2023 and 2022, on the deferred tax assets related to state net operating losses.

Post-retirement Benefits. We provide certain health care and life insurance benefits, along with split-dollar BOLI death benefits, to eligible retired employees. The cost of retiree health care and other benefits during the employees’ period of active service are accrued monthly. We account for benefits in accordance with ASC Topic 715 “Pension and Other Post-retirement Benefits.” The guidance requires an employer to: (a) recognize in the statement of financial position the over funded or underfunded status of a defined benefit post-retirement plan measured as the difference between the fair value of plan assets and the benefit obligations; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the Company's fiscal year (with limited exceptions); and (c) recognize as a component of other comprehensive income (loss), net of tax, the actuarial gain and losses and the prior service costs and credits that arise during the period. These assets and liabilities and expenses are based upon actuarial assumptions including interest rates, rates of increase in compensation, expected rate of return on plan assets and the length of time we will have to provide those benefits. Actual results may differ from these assumptions. These assumptions are reviewed and updated at least annually and management believes the estimates are reasonable.

Pending Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is to enable investors to better understand an entity’s overall performance and assess potential future cash flows. The ASU applies to all public entities that are required to report segment information in accordance with ASC 280.4 The amendments in ASU 2023-07 are effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of the ASU on its consolidated financial statements, but as it is only disclosure related, does not expect it to have an impact on its consolidated financial statements.

In December 2023, the FASB has issued ASU 2023-09, Improvements to Income Tax Disclosures. Under the ASU, public business entities ("PBEs") must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate). The Board is

36

releasing the ASU in response to stakeholder feedback indicating that the existing income tax disclosures should be enhanced to provide information to better assess how an entity’s operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. The ASU’s amendments are effective for PBEs for annual periods beginning after December 15, 2024. For entities other than PBEs, the amendments are effective for annual periods beginning after December 15, 2025. Entities are permitted to early adopt the standard for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the impact of the adoption of the ASU on its consolidated financial statements, but as it is only disclosure related, does not expect it to have an impact on its consolidated financial statements.

Comparison of Financial Condition at December 31, 2023 and 2022

General

Total assets increased $237.4 million, or 2.3%, to $10.6 billion at December 31, 2023 from $10.4 billion at December 31, 2022. The increase in total assets was primarily attributable to increases in cash and cash equivalents of $244.0 million, loans receivable, net of $194.7 million, Federal Home Loan Bank stock of $22.9 million and other assets of $23.7 million, partially offset by decreases in debt securities available for sale of $235.1 million and debt securities held to maturity of $20.4 million. The increase in cash and cash equivalents was primarily attributable to $277.0 million in proceeds from the sale of debt securities available for sale, and an increase in borrowings of $401.6 million, or 35.6%, partially offset by purchases of debt securities available for sale of $124.6 million, a decrease in total deposits of $154.6 million and $80.5 million in repurchases of common stock under our stock repurchase program. The increase in loan receivable, net, was primarily attributable to increases in multifamily real estate loans, construction loans, and commercial business loans of $170.0 million, $106.5 million, and $35.6 million, respectively, partially offset by decreases in one-to-four family real estate loans, commercial real estate loans and home equity loans and advances of $67.4 million, $36.3 million and $7.7 million, respectively. The allowance for credit losses for loans increased $2.3 million to $55.1 million at December 31, 2023 from $52.8 million at December 31, 2022. During the year ended December 31, 2023, the increase in the allowance for credit losses for loans was primarily due to an increase in the outstanding balance of loans and an increase in qualitative factors, partially offset by a decrease in loan loss rates. The increase in Federal Home Loan Bank Stock was due to the purchase of stock required upon acquiring new FHLB borrowings. The increase in other assets was primarily attributable to a $15.1 million increase in the Company's pension plan balance, as the return on plan assets outpaced the growth in the plan’s obligations, and a $10.0 million increase in a low income housing tax credit asset. The decrease in debt securities available for sale was primarily attributable to sales of securities of $277.0 million which resulted in a realized loss of $10.8 million, and repayments on securities of $100.9 million, which was partially offset by purchases of U.S. government obligations of $124.6 million and a decrease in the gross unrealized loss on securities of $30.3 million. The Bank sold U.S. government obligations at a weighted average rate of 2.36%, and mortgage-backed securities at a weighted average rate of 3.12% during the year ended December 31, 2023. The decrease in debt securities held to maturity was due to repayments.

Total liabilities increased $250.7 million, or 2.7%, to $9.6 billion at December 31, 2023 from $9.4 billion at December 31, 2022. The increase was primarily attributable to increases in borrowings of $401.6 million, or 35.6%, partially offset by a decrease in total deposits of $154.6 million, or 1.9%. The $401.6 million increase in borrowings was primarily driven by a net increase in long-term borrowings of $494.5 million, partially offset by a decrease in short-term borrowings of $93.2 million. The decrease in total deposits consisted of decreases in non-interest-bearing demand deposits of $368.8 million, interest-bearing demand deposits of $626.4 million, and savings and club deposits of $213.4 million, partially offset by increases in money market accounts of $537.0 million, and certificates of deposit accounts of $517.0 million.

Total stockholders’ equity decreased $13.3 million, or 1.3%, to $1.0 billion at December 31, 2023 from $1.1 billion at December 31, 2022. The decrease in equity was primarily attributable to the repurchase of 4,242,693 shares of common stock at a cost of approximately $80.5 million under our stock repurchase program, partially offset by net income of $36.1 million, and a $21.8 million decrease in unrealized losses on debt securities available for sale, net of taxes, included in other comprehensive income.

Securities

Debt securities available for sale and held to maturity decreased $255.4 million, or 14.6%, to $1.5 billion at December 31, 2023 from $1.8 billion at December 31, 2022. The decrease in securities during 2023 was primarily attributable to sales of securities of $277.0 million which resulted in a realized loss of $10.8 million, and repayments on securities of $116.8 million, which was partially offset by purchases of U.S. government obligations of $124.6 million and a decrease in unrealized losses on securities of $30.3 million. We continue to focus on maintaining a high quality securities portfolio that provides consistent cash flows in changing interest rate environments. At December 31, 2023, our total securities portfolio, which includes equity securities, was 14.1% of total assets, as compared to 16.8% at December 31, 2022.

At December 31, 2023, 79.3% of the debt securities available for sale portfolio was comprised of mortgage-backed securities and CMOs issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities are guaranteed by the issuing agency and backed by residential and multifamily mortgages. These securities are comprised of fixed rate, adjustable-rate and hybrid securities that bear a fixed rate for a specific term and thereafter, to the extent they are not prepaid, adjust periodically. At December 31, 2023, U.S. government and agency obligations comprised the next largest segment of the available for sale portfolio, totaling 13.3%. At

37

December 31, 2023, the remainder of our available for sale securities portfolio consisted of corporate debt securities and municipal obligations which comprised 7.1% and 0.3%, respectively.

At December 31, 2023, 87.6% of the debt securities held to maturity portfolio was comprised of mortgage-backed securities and CMOs issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities are guaranteed by the issuing agency and backed by residential and multifamily mortgages. These securities are comprised of fixed rate, adjustable-rate and hybrid securities that bear a fixed rate for a specific term and thereafter, to the extent they are not prepaid, adjust periodically. At December 31, 2023, the remaining 12.4% of our held to maturity securities portfolio consisted of U.S. government and agency obligations.

To mitigate the credit risk related to our securities portfolio, we primarily invest in agency and highly-rated securities. As of December 31, 2023, approximately 94.2% of the total portfolio consisted of direct government obligations or government sponsored enterprise obligations, approximately 5.5% of the remaining portfolio was rated at least investment grade and approximately 0.3% of the remaining portfolio was not rated. Securities not rated consist primarily of private placement municipal notes issued and/or guaranteed by local municipal authorities and equity securities.

The following table sets forth the amortized cost and fair value of securities at December 31, 2023, 2022 and 2021:

At December 31, 2023 and 2022, securities with carrying values of $1.3 billion and $1.7 billion, respectively, were in net unrealized loss positions that totaled $202.6 million and $238.6 million, respectively. The decrease in unrealized losses on securities in 2023 was primarily due to the sales of $277.0 million in predominantly fixed rate lower yielding securities and the purchase of higher yielding securities in 2023.

For available for sale securities, the Company assesses whether a loss is from credit or other factors and considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows is less than the amortized cost, a credit loss would be recorded through an allowance for credit losses, limited by the amount that the fair value is less than the amortized cost basis. We believe that unrealized and unrecognized losses on securities at December 31, 2023 are a function of changes in market interest rates and credit spreads, not changes in credit quality. Therefore, no allowance for credit losses was recorded at December 31, 2023.

For held to maturity securities, management measures expected credit losses on a collective basis by major security type. All of the mortgage-backed securities are issued by U.S. government agencies and are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses and, therefore, the expectation of non-payment is zero and the Company is not required to estimate an allowance for credit losses on these securities under the CECL standard. All these securities reflect a credit quality rating of AAA by Moody's Investors Service.

At December 31, 2023 and 2022, we had no securities in a single company or entity (other than United States Government and United States GSE securities) that had an aggregate book value in excess of 5% of our equity.

38

The following tables set forth the stated maturities and weighted average yields of securities at December 31, 2023. Certain securities have adjustable interest rates and will reprice monthly, quarterly, semi-annually or annually within the various maturity ranges. Weighted average yields for tax-exempt securities totaling $2.8 million with a weighted average rate of 1.21%, are presented on a tax equivalent basis using a federal marginal tax rate of 21%.

Equity securities are not included in the table based on lack of a maturity date. The tables present contractual final maturities for mortgage-backed securities and does not reflect repricing or the effect of prepayments.

39

Loans Receivable

Total gross loans increased $200.1 million, or 2.6%, to $7.8 billion at December 31, 2023 from $7.6 billion at December 31, 2022. One-to-four family real estate loans decreased $67.4 million, or 2.4%, to $2.8 billion at December 31, 2023 from $2.9 billion at December 31, 2022. Multifamily loans increased $170.0 million, or 13.7%, to $1.4 billion at December 31, 2023 from $1.2 billion at December 31, 2022. Commercial real estate loans decreased $36.3 million, or 1.5%, to $2.38 billion at December 31, 2023 from $2.41 billion at December 31, 2022. Construction loans increased $106.5 million, or 31.7%, to $443.1 million at December 31, 2023 from $336.6 million at December 31, 2022. Commercial business loans increased $35.6 million, or 7.2%, to $533.0 million at December 31, 2023 from $497.5 million at December 31, 2022. Home Equity loans and advances decreased $7.7 million, or 2.8%, to $266.6 million at December 31, 2023 from $274.3 million at December 31, 2022. We had a slowdown in originations and prepayments in several categories of loans in 2023. Our consumer loan products have had weak demand over the last few years and will continue to be negatively impacted by the rise in interest rates.

The following tables present the loan portfolio for the periods indicated:

Loan Maturity

The following table sets forth certain information at December 31, 2023 regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The table does not include any estimate of prepayments that significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. The table reflects final maturities for construction loans that convert to permanent loans and includes PCD loans. Demand loans having no stated schedule of repayments or maturity are reported as due in one year or less.

40

The following table sets forth all loans at December 31, 2023 that are due after December 31, 2024 and have either fixed interest rates or floating or adjustable interest rates:

41

Loan Originations and Sales

The following table shows loans originated, purchased, sold and other reductions in loans during the periods indicated:

Deposits

Our primary source of funds is our deposits, which are comprised of non-interest-bearing and interest-bearing transaction accounts, money market deposit accounts, savings and club deposits and certificates of deposit.

Deposits decreased $154.6 million, or 1.9%, to $7.8 billion at December 31, 2023 from $8.0 billion at December 31, 2022. The decrease in balances of non-interest-bearing demand, interest-bearing demand, and savings and club deposits was heavily attributed to a shift in balances to money market and certificates of deposit. The Bank has priced select money market and certificates of deposit accounts very competitively to the market, but there continues to be strong competition for funds from other banks and non-bank investment products. Municipal deposits totaled $861.8 million at December 31, 2023 compared to $850.1 million at December 31, 2022. We continue our efforts to emphasize deposit taking though various channels.

During 2023, non-interest-bearing demand accounts decreased $368.8 million, or 20.4%, interest-bearing demand accounts decreased $626.4 million, or 24.2%, and savings and club deposits decreased $213.4 million, or 23.4%. Money market accounts increased $537.0 million, or 74.7%, and certificates of deposits increased $517.0 million, or 26.2%. We have focused on obtaining deposit products by offering attractive pricing and promotions and by deepening our existing customer relationships.

42

The following table sets forth the deposit balances as of the periods indicated:

We are required to pledge securities or other financial instruments to secure municipal deposits. At December 31, 2023 and 2022, we had pledged securities totaling $240.8 million and $781.7 million, respectively, and FHLB irrevocable standby letters of credits totaling $575.6 million and $600,000 respectively, collateralizing public funds on deposit.

The following table sets forth the deposit activity for the periods indicated:

At December 31, 2023, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000, which is the maximum amount for federal deposit insurance) was $6.1 billion. This amount included municipal deposits of $825.9 million, which are collateralized, and intercompany deposits of $3.5 billion. Excluding these amounts, uninsured deposits totaled $1.8 billion.

The maturities of uninsured amounts included in time deposits are as follows:

43

The following table sets forth all of our certificates of deposit classified by interest rate as of the dates indicated:

The following table sets forth the amount and maturities of our certificates of deposit by interest rate at December 31, 2023:

44

The following tables set forth the average balances and weighted average rates of our deposit products at the dates indicated:

Borrowings

We have the ability to utilize advances and overnight lines of credit from the FHLB to supplement our liquidity. As member banks, we are required to own capital stock in the FHLB and are authorized to apply for advances on the security of such stock and certain mortgage loans and other assets, provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. We can also utilize securities sold under agreements to repurchase to provide funding. We maintain access to the Federal Reserve Bank’s Term Funding Program, discount window and federal funds lines with correspondent banks for additional contingency funding. To secure our borrowings, we generally pledge securities and/or loans. The types of securities pledged for borrowings include, but are not limited to, government-sponsored enterprises ("GSE") including notes and government agency mortgage-backed securities and CMOs. The types of loans pledged for borrowings include, but are not limited to, one-to-four family real estate loans home equity loans and multifamily and commercial real estate loans.

45

The following table sets forth the outstanding borrowings and weighted averages at the dates or for the periods indicated:

Comparison of Financial Condition at December 31, 2022 and 2021

For a comparison of the Company’s financial condition at December 31, 2022 and 2021, please see the section captioned “Comparison of Financial Condition at December 31, 2022 and 2021” in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

46

Results of Operations for the Year Ended December 31, 2023

Financial Highlights

Net income was $36.1 million for the year ended December 31, 2023 as compared to $86.2 million for the year ended December 31, 2022, a decrease of $50.1 million, or 58.1%. The decrease was attributable to a decrease in net interest income of $60.9 million, or 22.8%, a decrease in non-interest income of $3.0 million, or 9.9%, and an increase in non-interest expense of $7.6 million, or 4.3%, partially offset by a decrease in provision for credit losses of $698,000 or 12.7%, and a decrease in income tax expense of $20.7 million, or 67.5%. In 2023, the decrease in net interest income was primarily attributable to a $146.2 million increase in interest expense on deposits and borrowings, partially offset by a $85.3 million increase in interest income. The increase in interest income was primarily due to an increase in the average balance of total interest-earning assets coupled with an increase in average yields due to market interest rate increases in 2022 and 2023. The increase in interest expense on deposits and borrowings was driven by these same rate increases coupled with intense competition for deposits in the market and the repricing of existing deposits into higher cost products. The increase in interest expense on borrowings was also impacted by the significant increase in interest rates for new borrowings since interest rates began rising in March 2022, along with an increase in the average balance of borrowings.

The provision for credit losses of $4.8 million recorded for the year ended December 31, 2023 as compared to $5.5 million recorded for the year ended December 31, 2022, was primarily attributable to a decrease in loan loss rates, partially offset by an increase in the outstanding balance of loans.

The decrease in non-interest income was primarily attributable to an increase in the loss on securities transactions of $11.1 million, partially offset by an increase in bank-owned life insurance income of $2.7 million due to death benefit claims, an increase in the change in fair value of equity securities of $1.1 million, an increase in the gain on sale of loans of $1.0 million and an increase in other non-interest income of $3.8 million, primarily related to swap income.

The increase in non-interest expense was primarily attributable to an increase in compensation and employee benefits expense of $3.9 million, an increase in federal deposit insurance premiums of $6.0 million, and a loss on extinguishment of debt of $300,000, resulting from the prepayment of a term note. These increases were partially offset by a decrease in merger-related expenses of $2.2 million and a decrease in other non-interest expense of $4.1 million. The increase in compensation and employee benefits expense for the 2023 period was due to normal annual increases in employee related compensation, increased staff levels due to the May 2022 merger with RSI Bank, and severance expense recorded in June 2023 as a result of a workforce reduction. The federal deposit insurance premium expense increased due to the one-time Federal Deposit Insurance Corporation special assessment recorded in December 2023, and an increase in the assessment rate imposed by the FDIC effective January 1, 2023. The decrease in other non-interest expense was primarily related to non-recurring litigation settlements included in the 2022 period and the decrease in expenses related to swap transactions.

Income tax expense was $10.0 million for the year ended December 31, 2023, a decrease of $20.7 million, or 67.5%, as compared to $30.7 million for the year ended December 31, 2022, was mainly due to a decrease in pre-tax income, and to a lesser extent, a decrease in the Company's effective tax rate. The Company's effective tax rate was 21.6% and 26.3% for the years ended December 31, 2023 and 2022, respectively. The effective tax rate for the 2023 period was primarily impacted by lower net interest income and the loss on the sale of securities, and higher tax-exempt income.

47

Summary Income Statements

The following table sets forth the income summary for the periods indicated:

Net Interest Income

For the year ended December 31, 2023, net interest income decreased $60.9 million, or 22.8%, to $205.9 million from $266.8 million for the year ended December 31, 2022. For the year ended December 31, 2023, total interest income increased $85.3 million, or 27.5%, to $395.0 million, from $309.7 million for the year ended December 31, 2022. The increase in total interest income was primarily attributable to an increase in the average balances of loans and other interest-earning assets, coupled with increases in yields on all interest-earning assets, due to rising rates, partially offset by a decrease in the average balance of securities The yield on the loan portfolio for the year ended December 31, 2023 increased 64 basis points compared to the year ended December 31, 2022, while the yield on the securities portfolio for the year ended December 31, 2023 increased 20 basis points compared to the year ended December 31, 2022. The average yield on other interest-earning assets for the year ended December 31, 2023 increased 267 basis points compared to the year ended December 31, 2022. Increases in average yields on these portfolios for the year ended December 31, 2023 were influenced by the rise in interest rates in 2023.

The average cost of our interest-bearing liabilities increased 188 basis points to 2.52% for the year ended December 31, 2023, from 0.64% for the year ended December 31, 2022, primarily as a result of an increase in the average cost of interest-bearing deposits and borrowings and an increase in the average balances of interest-bearing deposits and borrowings. For the year ended December 31, 2023, the average cost of interest-bearing deposits increased 158 basis points. For the year ended December 31, 2023, total interest expense increased $146.2 million, or 340.9%, to $189.1 million from $42.9 million for the year ended December 31, 2022. During 2023, the average cost of borrowings increased 218 basis points, and there was a significant increase in the average balance of borrowings. The higher interest rate environment coupled with the higher cost of repricing deposits caused the overall increase in interest expense.

A provision for credit losses of $4.8 million was recorded for the year ended December 31, 2023 as compared to $5.5 million recorded for the year ended December 31, 2022. The decrease in provision for credit losses during the 2023 year was primarily attributable to a decrease in loan loss rates, partially offset by an increase in the outstanding balance of loans. Net charge-offs totaled $2.5 million for the year ended December 31, 2023, as compared to $45,000 for the year ended December 31, 2022. We charge-off any collateral or cash flow deficiency on all classified loans once they are 90 days delinquent or earlier where management determines that the collection of loan principal and interest is unlikely. The provision for credit losses was determined by management to be an amount necessary to maintain a balance of allowance for credit losses at a level that uses relevant and reliable information from internal and external sources, related past events, current conditions, and a reasonable and supportable forecast. Changes in the provision were based on management’s analysis of various factors within the qualitative and quantitative components of the allowance for credit losses calculation. At December 31, 2023, the allowance for credit losses totaled $55.1 million, or 0.70% of total gross loans outstanding, compared to $52.8 million, or 0.69% of total gross loans outstanding, as of December 31, 2022. An analysis of the changes in the allowance for credit losses is presented under “Risk Management-Analysis and Determination of the Allowance for Credit Losses” below.

48

Non-Interest Income

The following table sets forth a summary of non-interest income for the periods indicated:

For the year ended December 31, 2023, non-interest income decreased $3.0 million, or 9.9%, to $27.4 million from $30.4 million for the year ended December 31, 2022. In 2023, the decrease was primarily attributable to an increase in the loss on securities transactions of $11.1 million, partially offset by an increase in bank-owned life insurance income of $2.7 million due to death benefit claims, an increase in the change in fair value of equity securities of $1.1 million, an increase in the gain on sale of loans of $1.0 million and an increase in other non-interest income of $3.8 million, primarily related to swap income.

Non-Interest Expense

The following table sets forth an analysis of non-interest expense for the periods indicated:

For the year ended December 31, 2023, non-interest expense increased $7.6 million, or 4.3%, to $182.4 million from $174.8 million for the year ended December 31, 2022. The increase was primarily attributable to an increase in compensation and employee benefits expense of $3.9 million, an increase in federal deposit insurance premiums of $6.0 million, and a loss on extinguishment of debt of $300,000, resulting from the prepayment of a term note. These increases were partially offset by a decrease in merger-related expenses of $2.2 million and a decrease in other non-interest expense of $4.1 million. The increase in compensation and employee benefits expense for the 2023 period was due to normal annual increases in employee related compensation, increased staff levels due to the May 2022 merger with RSI Bank, and severance expense recorded in June 2023 as a result of a workforce reduction. The federal deposit insurance premium expense increased due to the one-time Federal Deposit Insurance Corporation special assessment recorded in December 2023, and an increase in the assessment rate imposed by the FDIC effective January 1, 2023. The decrease in other non-interest expense was primarily related to non-recurring litigation settlements included in the 2022 period and the decrease in expenses related to swap transactions.

49

Income Tax Expense

We recorded income tax expense of $10.0 million for the year ended December 31, 2023, reflecting an effective tax rate of 21.6%, compared to income tax expense of $30.7 million for 2022, reflecting an effective tax rate of 26.3%.

As of December 31, 2023, we had a net deferred tax asset totaling $25.5 million. We regularly evaluate the realizability of deferred tax asset positions. In determining whether a valuation allowance is necessary, we consider the level of taxable income in prior years to the extent that carrybacks are permitted under current tax laws, as well as estimates of future pre-tax and taxable income and tax planning strategies that would, if necessary, be implemented. We have provided a valuation allowance of $26,000 as of December 31, 2023 on the deferred tax assets related to the Bank’s state net operating losses.

Results of Operations for the Year Ended December 31, 2022

Financial Highlights

Net income was $86.2 million for the year ended December 31, 2022 as compared to $92.0 million for the year ended December 31, 2021, a decrease of $5.9 million, or 6.4%. The decrease was attributable to an increase in our provision for credit losses of $15.4 million, or 155.1%, a decrease in non-interest income of $8.4 million, or 21.7%, and an increase in non-interest expense of $19.1 million, or 12.3%, partially offset by an increase in net interest income of $33.6 million, or 14.4%, and a decrease in income tax expense of $3.4 million, or 10.0%. In 2022, the increase in net interest income was primarily attributable to a $39.5 million increase in interest income, partially offset by an increase of $5.9 million in interest expense. The increase in interest income for the year ended December 31, 2022 was primarily due to an increase in the average balances of interest-earning assets coupled with an increase in average yields due to the rise in interest rates in 2022. The increase in interest expense on deposits was driven by an increase in the average balance of deposits coupled with the repricing of existing deposits at higher rates, and the increase in interest expense on borrowings was due to the rise in interest rates. The Federal Reserve raised interest rates 25 basis points in March 2022, and again approved five additional rate increases between May 2022 and December 2022, ranging from 50 to 75 basis points. The rise in interest rates initially had a more immediate impact on interest income from loans, securities and other interest-earning assets than interest expense on deposits, as the repricing on deposit products lags in relation to increases in market interest rates.

The provision for credit losses of $5.5 million recorded for the year ended December 31, 2022, as compared to a reversal of $10.0 million of provision for credit losses recorded for the year ended December 31, 2021, was primarily attributable to an increase in the balance of loans and the consideration of current and projected economic conditions. Net charge-offs totaled $45,000 for the year ended December 31, 2022, as compared to $2.0 million for the year ended December 31, 2021.

The decrease in non-interest income was primarily attributable to a decrease in income from the gain on the sale of loans of $10.6 million, a decrease in income from title insurance fees of $2.7 million, and a decrease in gain on securities transactions of $1.8 million, partially offset by an increase in demand deposit account fees of $1.5 million, an increase in bank-owned life insurance income of $1.4 million due to death benefit claims, an increase in the change in fair value of equity securities of $1.4 million, and an increase in other non-interest income of $1.4 million, primarily due to an insurance settlement. The gain on sale of loans for the year ended December 31, 2021 included a $7.7 million gain on the sale of commercial business loans granted as part of the Small Business Administration PPP.

The increase in non-interest expense was primarily attributable to an increase in compensation and employee benefits expense of $17.4 million, an increase in occupancy expense of $2.5 million, and an increase in merger-related expenses of $2.0 million, partially offset by a decrease in loss on the extinguishment of debt of $2.9 million. The increase in compensation and employee benefits expense was due to an increase in the number of employees as a result of recent mergers, along with normal annual increase in salaries and bonuses and related personnel benefit costs. There was an increase of 90 full time equivalent employees from December 31, 2021 compared to December 31, 2022. The increase in occupancy expense primarily related to additional costs incurred with respect to locations acquired in connection with recent mergers. The merger-related expenses for the year ended December 31, 2022 was mainly related to the acquisition of RSI Bank, while merger expenses for the year ended December 31, 2021 were mainly related to the completed acquisition of Freehold Bank. During the year ended December 31, 2021, the Company utilized excess liquidity to prepay borrowings and also terminated related derivative contracts, which resulted in a $2.9 million loss on early extinguishment of debt.

The overall decrease in our pre-tax income was mostly attributable to an increase in the provision for credit losses, decrease in non-interest income and increase in non-interest expense, partially offset by an increase in net interest income and a decrease in income tax expense. Income tax expense was $30.7 million for the year ended December 31, 2022, a decrease of $3.4 million, or 10.0%, as compared to $34.1 million for the year ended December 31, 2021, mainly due to a decrease in pre-tax income, and to a lesser extent, a decrease in the Company's effective tax rate. The Company's effective tax rate was 26.3% and 27.1% for the years ended December 31, 2022 and 2021, respectively.

50

Summary Income Statements

The following table sets forth the income summary for the periods indicated:

Net Interest Income

For the year ended December 31, 2022, net interest income increased $33.6 million, or 14.4%, to $266.8 million from $233.1 million for the year ended December 31, 2021. For the year ended December 31, 2022, total interest income increased $39.5 million, or 14.6%, to $309.7 million, from $270.2 million for the year ended December 31, 2021. The increase in interest income was primarily attributable to an increase in the average balances of loans coupled with increases in yields on all interest-earning assets, due to rising rates, partially offset by a decrease in the average balances of securities and other interest-earning assets. The yield on the loan portfolio for the year ended December 31, 2022 was 7 basis points higher than the yield for the year ended December 31, 2021, while the yield on the securities portfolio was 28 basis points higher for the 2022 period. The average yield on other interest-earning assets for the year ended December 31, 2022 increased 217 basis points compared to the year ended December 31, 2021. Increases in average yields on these portfolios for the year ended December 31, 2022 were influenced by the rise in interest rates in 2022.

The average cost of our interest-bearing liabilities increased to 0.64% for the year ended December 31, 2022, from 0.58% for the year ended December 31, 2021, primarily as a result of an increase in the average balance of interest-bearing deposits coupled with an increase in the average cost of borrowings. For the year ended December 31, 2022, the average cost of interest-bearing deposits decreased 7 basis points. The repricing of interest-bearing deposits lags in relation to other interest-bearing liabilities in a rising rate environment. For the year ended December 31, 2022, total interest expense increased $5.9 million, or 15.9%, to $42.9 million from $37.0 million for the year ended December 31, 2021. During 2022, the average cost of borrowings increased 149 basis points, partially offset by a decrease in the average balance of borrowings. The higher interest rate environment coupled with the higher cost of repricing deposits caused the overall increase in interest expense.

A provision for credit losses of $5.5 million was recorded for the year ended December 31, 2022 compared to a reversal of provision for credit losses of $10.0 million for the year ended December 31, 2021. The increase in provision for credit losses during the year was primarily attributable to an increase in the balances of loans and the consideration of current and projected economic conditions. Net charge-offs totaled $45,000 for the year ended December 31, 2022, as compared to $2.0 million for the year ended December 31, 2021. We charge-off any collateral or cash flow deficiency on all classified loans once they are 90 days delinquent or earlier where management determines that the collection of loan principal and interest is unlikely. The provision for credit losses was determined by management to be an amount necessary to maintain a balance of allowance for credit losses at a level that uses relevant and reliable information from internal and external sources, related past events, current conditions, and a reasonable and supportable forecast. Changes in the provision were based on management’s analysis of various factors within the qualitative and quantitative components of the allowance for credit losses calculation. At December 31, 2022, the allowance for credit losses totaled $52.8 million, or 0.69% of total gross loans outstanding, compared to $62.7 million, or 0.99% of total gross loans outstanding, as of December 31, 2021. An analysis of the changes in the allowance for credit losses is presented under “Risk Management-Analysis and Determination of the Allowance for Credit Losses” below.

51

Non-Interest Income

The following table sets forth a summary of non-interest income for the periods indicated:

For the year ended December 31, 2022, non-interest income decreased $8.4 million, or 21.7%, to $30.4 million from $38.8 million for the year ended December 31, 2021. In 2022, the decrease was primarily attributable to a decrease in income from the gain on the sale of loans of $10.6 million, a decrease in income from title insurance fees of $2.7 million, and a decrease in gain on securities transactions of $1.8 million, partially offset by an increase in demand deposit account fees of $1.5 million, an increase in bank-owned life insurance income of $1.4 million due to death benefit claims, an increase in the change in fair value of equity securities of $1.4 million, and an increase in other non-interest income of $1.4 million, primarily due to an insurance settlement. The gain on sale of loans for the year ended December 31, 2021 included a $7.7 million gain on the sale of commercial business loans granted as part of the Small Business Administration PPP.

Non-Interest Expense

The following table sets forth an analysis of non-interest expense for the periods indicated:

For the year ended December 31, 2022, non-interest expense increased $19.1 million, or 12.3%, to $174.8 million from $155.7 million for the year ended December 31, 2021. The increase was primarily attributable to an increase in compensation and employee benefits expense of $17.4 million, an increase in occupancy expense of $2.5 million, and an increase in merger-related expenses of $2.0 million, partially offset by a decrease in loss on the extinguishment of debt of $2.9 million. The increase in compensation and employee benefits expense was due to an increase in the number of employees as a result of recent mergers, along with normal annual increase in salaries and bonuses and related personnel benefit costs. There was an increase of 90 full time equivalent employees from December 31, 2021 compared to December 31, 2022. The increase in occupancy expense primarily related to additional costs incurred with respect to locations acquired in connection with recent mergers. The increase in merger-related expenses was mainly related to the acquisition of RSI Bank. During the year ended December 31, 2021, the Company utilized excess liquidity to prepay borrowings and also terminated related derivative contracts, which resulted in a $2.9 million loss on early extinguishment of debt.

52

Income Tax Expense

We recorded income tax expense of $30.7 million for the year ended December 31, 2022, reflecting an effective tax rate of 26.3%, compared to income tax expense of $34.1 million for 2021, reflecting an effective tax rate of 27.1%.

As of December 31, 2022, we had a net deferred tax asset totaling $36.9 million. We regularly evaluate the realizability of deferred tax asset positions. In determining whether a valuation allowance is necessary, we consider the level of taxable income in prior years to the extent that carrybacks are permitted under current tax laws, as well as estimates of future pre-tax and taxable income and tax planning strategies that would, if necessary, be implemented. We have provided a valuation allowance of $2.0 million as of December 31, 2022 on the deferred tax assets related to the Bank’s state net operating losses.

Results of Operations for the Fiscal Year Ended December 31, 2021

For a comparison of the Company’s results of operations for the year ended December 31, 2021, please see the section captioned “Results of Operations for the Fiscal Year Ended December 31, 2021” in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Average Balances and Yields

The following tables present information regarding average balances of assets and liabilities, as well as the total dollar amounts of interest income and dividends from average interest-earning assets, and interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average daily balances of assets or liabilities, respectively, for the periods presented. Loan (fees) costs, including prepayment fees, are included in interest income on loans and are not material. Non-accrual loans and PCD loans are included in the average balances and are not material. Yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.

53

54

55

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns.

Risk Management

Overview. Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk, liquidity risk, and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of interest income as a result of changes in interest rates. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers. Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such as available for sale securities that are accounted for at fair value. Other risks that we face are operational risk, liquidity risk and reputation risk. Operational risk includes risks related to fraud, regulatory compliance, processing errors, cyber attacks, and disaster recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or revenue.

We maintain a Risk Management Division comprised of our Risk Management, Compliance, Credit Risk Review, Collateral Risk, and Security Departments. Our Risk Management Division is led by our Executive Vice President and Chief Risk Officer, who reports quarterly to Columbia Bank’s Risk Committee, which is comprised of the full board of directors. The current structure of our Risk Management Division is designed to monitor and address, among other things, financial, credit, collateral, consumer compliance, operational, Bank Secrecy Act, fraud, cyber security, vendor and insurable risks. The Risk Management Division utilizes a number of enterprise risk assessment tools, including stress testing, credit concentration reviews, peer analyses, industry considerations and individual risk assessments, to identify and report potential risks that we face in connection with our business operations.

Credit Risk Management. The objective of our credit risk management strategy is to quantify and manage credit risk and to limit the risk of loss resulting from an individual customer default. Our credit risk management strategy focuses on conservatism, diversification within the loan portfolio and monitoring. Our lending practices include conservative exposure limits and underwriting, documentation and collection standards. Our credit risk management strategy also emphasizes diversification on an industry and customer level as well as regular credit examinations and monthly management reviews of large credit exposures and loans experiencing deterioration in credit quality. Our credit risk review function provides objective assessments of the quality of underwriting and documentation, the accuracy of risk ratings and the charge-off, non-accrual and impact on the reserve analysis

56

process. Our credit review process and overall assessment of credit defaults and charge-offs on our allowance for credit losses is analyzed quarterly or as necessary. We use these assessments to identify potential problem loans within the portfolio, maintain an adequate reserve and take any necessary charge-offs when deemed appropriate.

When a borrower fails to make a required payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status. Generally, our collection department follows the guidelines for servicing loans as prescribed by applicable law or the appropriate investor. Collection activities include, but are not limited to, phone calls to borrowers and collection letters, which include a late charge notice based on the contractual requirements of the specific loan. Additional calls and notices are mailed in compliance with state and federal regulations including, but not limited to, the Fair Debt Collection Practices Act. After the 90th day of delinquency for a residential mortgage or consumer loan, or on a different date as allowable by law or contract, the collection department will forward the account to counsel and begin the collection litigation which typically includes foreclosure proceedings, or we may periodically sell a delinquent loan to a third- party. If a foreclosure action is instituted and the loan is not in at least the early stages of a workout by the scheduled sale date, the real property securing the loan generally is sold at a sheriff sale. If we determine that there is a possibility of a settlement, pay-off or reinstatement, the sheriff sale may be postponed.

We charge off the collateral or cash flow deficiency on all consumer loans once they become 180 days delinquent and all commercial loans once they become 90 days delinquent or earlier if management believes the collectability of the loan is unlikely. In addition to the individual review of larger commercial loans that exhibit probable or observed credit weaknesses, the commercial credit review process includes the use of an enhanced risk rating system. Historical portfolio performance metrics, current economic conditions and delinquency monitoring are factors used to assess the credit risk in our homogeneous commercial, residential and consumer loan portfolios.

Analysis of Non-Performing, Modification of Loans and Classified Assets. We consider repossessed assets and loans to be non-performing assets if they are 90 days or more past due or earlier if management believes the collectability of the loan is unlikely. Generally, all loans are placed on non-accrual status when the payment of interest is 90 days or more in arrears of its contractual due date, at which time the accrual of interest ceases. Typically, payments received on a non-accrual loan are applied to the outstanding principal balance of the loan.

Real estate that we acquire through foreclosure or by deed in lieu of foreclosure is classified as real estate owned until it is sold. When an asset is acquired, the excess of the loan balance over fair value less estimated selling costs is charged to the allowance for loan losses. Operating results from real estate owned, including rental income, operating expenses, and gains and losses realized from the sales of real estate owned are recorded as incurred.

Modifications made to borrowers experiencing financial difficulty may include principal or interest forgiveness, forbearance, interest rate reductions, term extensions, or a combination of these events intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

Modified loans that were accruing prior to their modification where income was reasonably assured subsequent to the modification, maintain their accrual status. Modified loans for which collectability was not reasonably assured, are placed on non-accrual status, interest accruals cease, and uncollected accrued interest is reversed and charged against current income. Non-accruing modified loans may be returned to accrual status when there is a sustained period of repayment performance (generally six consecutive months of payments), and both principal and interest are deemed collectible.

On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures, which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. See note 7 to our consolidated financial statements for further information on modification of loans.

57

The following table sets forth information with respect to our non-performing assets at the dates indicated, excluding PCD loans. We did not have any accruing loans past due 90 days or more at any of the dates indicated.

Non-performing assets increased $5.9 million to $12.6 million, or 0.12% of total assets, at December 31, 2023 from $6.7 million, or 0.06% of total assets, at December 31, 2022. The $5.9 million increase in non-performing loans was primarily attributable to an increase in non-performing commercial business loans of $5.7 million and an increase in nonperforming one-to-four family real estate loans of $410,000. The increase in non-performing commercial business loans was due to an increase in the number of loans from three non-performing loans at December 31, 2022 to ten loans at December 31, 2023, including a $3.7 million loan to a technology company. The increase in non-performing one-to-four family real estate loans was due to an increase in the number of loans from 12 non-performing loans at December 31, 2022 to 17 loans at December 31, 2023. Non-performing assets as a percentage of total assets totaled 0.12% at December 31, 2023 as compared to 0.06% at December 31, 2022. We charge-off the collateral or cash flow deficiency on all loans meeting our definition of an impaired loan, which we define as a loan for which it is probable, based on current information, that we will not collect all amounts due under the contractual terms of the loan agreement. We consider the population of loans in our impairment analysis to include all multifamily and commercial real estate, construction, and commercial business loans with outstanding balances greater than $500,000 and not accruing interest, loans modified in a troubled debt restructuring, and other loans if there is specific information of a collateral shortfall. We continue to rigorously review our loan portfolio to ensure that the collateral values remain sufficient to support the outstanding balances.

Non-performing assets increased $2.8 million to $6.7 million, or 0.06% of total assets, at December 31, 2022 from $3.9 million, or 0.04% of total assets, at December 31, 2021. The $2.8 million increase in non-performing loans was primarily attributable to increases of $1.3 million in non-performing one-to-four family real estate loans, $1.3 million in non-performing commercial real estate loans, $40,000 in non-performing commercial business loans, and $85,000 in non-performing home equity loans and advances. The increase in non-performing one-to-four family real estate loans was due to an increase in the number of loans from seven non-performing loans at December 31, 2021 to 12 loans at December 31, 2022. The increase in non-performing commercial real estate loans was due to an increase in the number of loans from one non-performing loan at December 31, 2021 to two non-performing loans at December 31, 2022. The decrease in non-performing commercial business loans was due to charge-offs totaling $2.0 million. The increase in non-performing home equity loans and advances was due to an increase in the number of loans from four non-performing loans at December 31, 2021 to six non-performing loans at December 31, 2022. We charge-off the collateral or cash flow deficiency on all loans meeting our definition of an impaired loan, which we define as a loan for which it is probable, based on current information, that we will not collect all amounts due under the contractual terms of the loan agreement. We consider the population of loans in our impairment analysis to include all multifamily and commercial real estate, construction, and commercial business loans with outstanding balances greater than $500,000 and not accruing interest, loans modified in a troubled debt restructuring, and other

58

loans if there is specific information of a collateral shortfall. We continue to rigorously review our loan portfolio to ensure that the collateral values remain sufficient to support the outstanding balances.

Federal regulations require us to review and classify our assets on a regular basis. In addition, our banking regulators have the authority to identify problem assets and, if appropriate, require them to be classified. Our credit review process includes a risk classification of all commercial and residential loans that includes four levels of pass, special mention, substandard, doubtful and loss. A loan is classified as pass when payments are current and it is performing under the original contractual terms. A loan is classified as special mention when the borrower exhibits potential credit weakness or a downward trend which, if not checked or corrected, will weaken the asset or inadequately protect our position. While potentially weak, the borrower is currently marginally acceptable; no loss of principal or interest is envisioned. A loan is classified as substandard when the borrower has a well-defined weakness or weaknesses that jeopardize the orderly liquidation of the debt. A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor, normal repayment from this borrower is in jeopardy, and there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. A loan is classified as doubtful when a borrower has all weaknesses inherent in a substandard loan with the added provision that: (1) the weaknesses make collection of debt in full on the basis of currently existing facts, conditions and values highly questionable and improbable; (2) serious problems exist to the point where a partial loss of principal is likely; and (3) the possibility of loss is extremely high, but because of certain important, reasonably specific pending factors that may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens and additional refinancing plans. A loan is classified as loss when all or a portion of the loan is considered uncollectible and of such little value that its continuance on our books without establishment of a specific valuation allowance or charge off is not warranted. This classification does not necessarily mean that the loan has no recovery or salvage value. Rather, it indicates that there is significant doubt about whether, how much or when recovery will occur.

A loan is considered delinquent when we have not received a payment within 30 days of its contractual due date. Generally, a loan is designated as a non-accrual loan when the payment of interest is 90 days or more in arrears of its contractual due date. At December 31, 2023, there were no loans past due 90 or more still accruing interest. In accordance with the CARES Act, these loans are not included in the aging of loans receivable by portfolio segment in the table below, and the Bank continues to accrue interest income during the forbearance or deferral period. If adverse information indicating that the borrower's capability of repaying all amounts due is unlikely, the interest accrual will cease. The following tables summarize the aging of loans receivable by portfolio segment at the dates indicated:

59

The following tables present criticized and classified assets by credit quality risk indicator at the dates indicated:

All impaired loans classified as substandard and doubtful are written down to the fair value of their underlying collateral if the loan is collateral dependent.

Analysis and Determination of the Allowance for Credit Losses

The allowance for credit losses on loans is a valuation account that reflects management's evaluation of estimated losses in the current loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for credit losses is charged to earnings. The ACL is maintained at a level management considers adequate to provide for estimated losses and impairment based upon an evaluation of known and inherent risk in the loan portfolio. The ACL consists of two elements: (1) identification of loans that must be individually analyzed for impairment and (2) establishment of an ACL for loans collectively analyzed.

Individually Analyzed Loans. Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any relationships have deteriorated, considering factors such as historical loss experience, trends in delinquency and non-performing loans, changes in risk composition and underwriting standards, and regional and national economic conditions and trends.

Our loan officers and loan servicing staff identify and manage potential problem loans within our commercial loan portfolio. Non-performing assets within the commercial loan portfolio are transferred to the Special Assets Department for workout or litigation. The Special Assets Department reports directly to the Chief Credit Officer. Changes in management, financial or operating performance, company behavior, industry factors and external events and circumstances are evaluated on an ongoing basis to determine whether potential impairment is evident and additional analysis is needed. For our commercial loan portfolio, risk ratings are assigned to each individual loan to differentiate risk within the portfolio and are reviewed on an ongoing basis by credit management and the Credit Risk Review Department and revised, if needed, to reflect the borrower’s current risk profiles and the related collateral positions.

The risk ratings consider factors such as financial condition, debt capacity and coverage ratios, market presence and quality of management. When a credit’s risk rating is downgraded to a certain level, the relationship must be reviewed and detailed reports completed that document risk management strategies for the credit going forward, and the appropriate accounting actions to take in accordance with generally accepted accounting principles in the United States. When credits are downgraded beyond a certain level, our Special Assets and Loan Servicing Departments become responsible for managing the credit risk.

The Asset Classification Committee reviews risk rating actions (specifically downgrades or upgrades between pass and the criticized and classified categories) recommended by Lending, Loan Servicing, Commercial Credit, Credit Risk Review and/or Special Assets Departments on a quarterly basis. Our Commercial Credit, Credit Risk Review, Lending, and Loan Servicing Departments monitor our commercial, residential and consumer loan portfolios for credit risk and deterioration considering factors such as delinquency, loan to value ratios and credit scores.

When problem loans are identified that are secured with collateral, management examines the loan files to evaluate the nature and type of collateral supporting the loans. Management documents the collateral type, date of the most recent valuation, and whether any liens exist, to determine the value to compare against the committed loan amount. If a loan is identified as impaired and is collateral dependent, an updated appraisal is obtained to provide a baseline in determining the property’s fair value. A collateral dependent impaired loan is written down to its appraised value and a specific allowance is established to cover potential selling costs. If the collateral value is subject to significant volatility (due to location of asset, obsolescence, etc.) an appraisal is obtained more frequently. In-house revaluations are typically performed on a quarterly basis and updated appraisals are obtained annually, if determined necessary.

When we determine that the value of an impaired loan is less than its carrying amount, we recognize impairment through a charge-off to the allowance for credit losses. We perform these assessments on an ongoing basis. For commercial loans, a charge-off is

60

recorded when management determines we will not collect 100% of a loan based on the fair value of the collateral or the net present value of expected future cash flows. The collateral deficiency on consumer loans and residential loans are generally charged-off when deemed to be uncollectible or delinquent 180 days, whichever comes first, unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status. Examples that would demonstrate repayment include a loan that is secured by adequate collateral and is in the process of collection, a loan supported by a valid guarantee or insurance, or a loan supported by a valid claim against a solvent estate.

Collectively Analyzed Loans. Additionally, we reserve for certain inherent, but undetected, losses that are probable within the loan portfolio. This is due to several factors, such as, but not limited to, inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions and the interpretation of economic trends. While this analysis is conducted at least quarterly, we have the ability to revise the allowance factors whenever necessary to address improving or deteriorating credit quality trends or specific risks associated with a given loan pool classification.

A comprehensive analysis of the allowance for credit losses on loans is performed on a quarterly basis. The entire allowance for credit losses on loans is available to absorb losses in the loan portfolio irrespective of the amount of each separate element of the ACL. Our principal focus, therefore, is on the adequacy of the total allowance for credit losses.

Although we believe we have established and maintained the ACL on loans at appropriate levels, changes in reserves may be necessary if actual economic and other conditions differ substantially from the forecast used in estimating the ACL. See note 2 to our consolidated financial statements for a detailed discussion of our accounting policies and methodologies for establishing the ACL.

The allowance for credit losses is subject to review by our banking regulators. On an annual basis our primary bank regulator conducts an examination of the allowance for credit losses and makes an assessment regarding its adequacy and the methodology employed in its determination.

Total Loans. During the year ended December 31, 2023, the balance of the allowance for credit losses increased by $2.3 million to $55.1 million, or 0.70% of total gross loans at December 31, 2023, from $52.8 million, or 0.69% of total gross loans at December 31, 2022. The increase in the total loan coverage ratio for the year ended December 31, 2023 was primarily attributable to an increase in the outstanding balance of loans and an increase in qualitative factors, partially offset by a decrease in loan loss rates.

One-to-Four Family Loan Portfolio. The portion of the allowance for credit losses related to the one-to-four family real estate loan portfolio totaled $13.0 million, or 0.5%, of one-to-four family loans at December 31, 2023, as compared to $11.8 million, or 0.4%, of one-to-four family real estate loans at December 31, 2022. Our one-to-four family non-accrual loans increased $409,000,

61

or 15.0%, to $3.1 million at December 31, 2023 from $2.7 million at December 31, 2022. Net charge-offs were $568,000 for the year ended December 31, 2023 compared to $44,000 for the year ended December 31, 2022. We believe the one-to-four family real estate loan reserve ratio was appropriate given the continued low levels of charge-offs.

Multifamily Loan Portfolio. The portion of the allowance for credit losses related to the multifamily real estate loan portfolio totaled $8.7 million, or 0.6%, of multifamily loans at December 31, 2023, as compared to $7.9 million, or 0.6%, of multifamily loans at December 31, 2022. There were no multifamily non-accrual loans at December 31, 2023 and 2022. There were no charge-offs or recoveries for the years ended December 31, 2023 and 2022. We believe the multifamily loan reserve ratio was appropriate given the low levels of charge-offs.

Commercial Real Estate Loan Portfolio. The portion of the allowance for credit losses related to the commercial real estate loan portfolio totaled $15.8 million, or 0.7%, of commercial real estate loans at December 31, 2023, as compared to $18.1 million, or 0.7%, of commercial real estate loans at December 31, 2022. Commercial real estate non-accrual loans decreased to $2.7 million at December 31, 2023, from $2.9 million at December 31, 2022. Net charge-offs were $129,000 for the year ended December 31, 2023. There were no charge-offs or recoveries for the year ended December 31, 2022. We believe the commercial real estate loan reserve ratio was appropriate given the continued low balance of non-accrual loans along with low levels of charge-offs.

Construction Loan Portfolio.  The portion of the allowance for credit losses related to the construction loan portfolio totaled $7.8 million, or 1.8%, of construction loans at December 31, 2023, as compared to $6.4 million, or 1.9%, of construction loans at December 31, 2022. At both December 31, 2023 and 2022, we had no criticized, classified or non-accrual construction loans. There were no charge-offs or recoveries for the years ended December 31, 2023 and 2022. We believe the construction loan reserve ratio was appropriate as there were no non-accrual loans or charge-offs, considering the inherent credit risk associated with this portfolio.

Commercial Business Loan Portfolio. The portion of the allowance for credit losses related to the commercial business loan portfolio totaled $7.9 million, or 1.5%, of commercial business loans at December 31, 2023, as compared to $6.9 million, or 1.4%, of commercial business loans at December 31, 2022. Commercial business non-accrual loans increased to $6.5 million at December 31, 2023, from $801,000 at December 31, 2022. Net charge-offs were $1.7 million for the year ended December 31, 2023 compared to net recoveries of $18,000 for the year ended December 31, 2022. We continue to charge-off any collateral deficiency for non-performing loans once a loan is 90 days past due. We believe the commercial business loan reserve ratio was appropriate given the inherent credit risk of commercial business loans.

Home Equity Loans and Advances. The portion of the allowance for credit losses related to the home equity loan portfolio totaled $1.9 million, or 0.7%, of home equity loans at December 31, 2023, as compared to $1.7 million, or 0.6%, of home equity loans at December 31, 2022. Home equity non-accrual loans decreased to $221,000 at December 31, 2023, from $286,000 at December 31, 2022. Net recoveries were $51,000 for the year ending December 31, 2023 and $12,000 for the year ending December 31, 2022. We believe the home equity loan reserve was appropriate based upon the insignificant amount of delinquencies, non-accrual loans and charge-offs.

62

The following table sets forth an analysis of the activity in the allowance for credit losses for the periods indicated: